Spain seeks to calm fears it is 'next Greece' as European markets plunge

• Government says it aims to cut deficit to 3% of GDP by 2013
• Madrid's Ibex index falls for second day as investor anxiety spreads throughout Europe
• Warning of potential for debt 'domino effect' to hit EU

The Madrid stock exchange on 5 February, where the Ibex index of most-traded stocks fell for the second day running. Photograph: Angel Diaz/EPA

Spain's government will seek to reassure investors over the country's rising debts today, in a bid to calm the turmoil in financial markets that has seen a heavy sell-off in Spanish shares continue for a second day.

As stock markets continue to fall around the world on fears over European deficits, Spanish economy minister Elena Salgado will reiterate that the government is focused on cutting the budget deficit to 3% of gross domestic product by 2013, from more than 11% now, her deputy, economy secretary José Manuel Campa, told theguardian.com.

"Spain is in a solid position and we've had low deficits for 10 years – the deficit has grown now but we will be cutting it," said Campa.

The wave of investor anxiety throughout global markets over the last 24 hours has hit Spain particularly hard. Campa was speaking as the Ibex index of Madrid's most traded stocks plunged for a second day and the cost of protecting investors against a default of Spanish debt reached a record high.

"Our economy is also much bigger [than Greece], more diversified and, with all the investments that we've made for years, it's more competitive," Campa said.

Despite European officials' attempts at reassurance, stock indices fell sharply in Europe this morning. The FTSE 100 was down more than 1.5% at 5062 by lunchtime, while Spain lost more than 2%, following yesterday's 6% plunge. Banco Santander lost 3.5% in early trade, extending yesterday's 9% drop. Shares in the bank sank despite its reporting a full-year profit of €8.9bn (£7.8bn) yesterday, making it one of the most profitable banks in the world.

In currency markets, the euro hit its weakest level against the dollar in more than eight months as fears persisted among investors over rising government deficits in southern Europe.

"They are looking for the next Greece," said Gary Jenkins, a credit analyst at Evolution Securities. "When it comes to panic, the markets sell first and raise questions later."

Concerned about Greece's ability to pay its debts, investors are looking for other countries that might be in a similar position, analysing their figures rather than listening to their politicians, Jenkins said.

"To think that things are OK just because politicians say they are OK, it's laughable," he said. "This is extremely serious – the politicians need to do something to stop this domino effect. If things get worse, the whole of the EU could implode."

The cost of insuring $10m (£6,000,000) of Spain's sovereign debt has escalated to a record $183,000, about twice as much as Britain's and four times more than Germany's.

• This article was amended on 8 February 2010. The original gave the cost of insuring $1m (£600,000) of Spain's sovereign debt as $183,000. This has been corrected.